the CFTC sues Coinbase as well

Yesterday, the news was released that in the context of the investigation against Polymarket, the CFTC has also subpoenaed Coinbase.

The same Coinbase reports it, stating in an email sent to some of its users that the company has received a subpoena in the matter concerning Polymarket. 

It also reports that with this citation the CFTC (Commodity Futures Trading Commission) has requested general information about clients, including information related to the accounts.

Therefore, it anticipates that, in some cases, the exchange might be required to send information related to individual users’ accounts in response to this subpoena, unless the company formally receives a motion to quash or another document preventing the sharing of this information by the close of business on January 15, 2025.

CFTC and Polymarket

The CFTC is the government agency that regulates the U.S. derivatives markets, including futures, swaps, and certain types of options.

It also deals with commodities, unlike the SEC which deals with securities, and criptovalute are in fact considered commodities in the USA, at least the main ones.

Polymarket, on the other hand, is the largest crypto betting site in the world.

It was launched in 2020, and it is primarily based on USDC on the Polygon network. It works by allowing the exchange of “shares” that represent the probability of specific outcomes occurring in the future.

However, in 2022 it blocked access to US customers, following an agreement with the CFTC that accused the company of operating an unregistered derivatives trading platform. 

However, the problem does not seem to have been resolved, so much so that the Department of Justice is still investigating this platform on charges of having allowed some users residing in the USA to place bets. In particular, during the recent presidential elections, it recorded a real boom. 

The site was subsequently blocked in France, again for offering online gambling in violation of French laws. 

The accusations against the crypto exchange Coinbase

Apparently, Coinbase is involved in the matter only because some transactions to or from Polymarket involved some of their users.

The point is that U.S. users should not be allowed to deposit funds on that platform, and the CFTC is investigating to understand if some U.S. users of the exchange have done so. 

Coinbase is the largest crypto exchange in the United States. 

The issue is purely legal/regulatory in nature, meaning that the only thing Polymarket is accused of is not having all the necessary authorizations to operate in the USA as well. 

However, it remains a serious matter, so much so that the CFTC has asked the main US exchange for information regarding the accounts of some of its national users who may have managed to use Polymarket in violation of the 2022 agreements. 

Note that the company behind Polymarket is based in New York. 

CFTC: the doubts about Polymarket 

In addition to the strictly legal issues, someone has also raised some doubts about the proper functioning of Polymarket.

In reality, the doubts concern the possibility that some of the betting markets hosted by the platform may be manipulated. 

This is a recurring doubt in the crypto markets, and in fact, it is widely established that some markets, at certain times, can be manipulated. 

In particular, when there is little liquidity in a crypto market, it is not at all difficult to artificially spike prices to attract the “polli” just before selling large amounts at increased prices, causing the market to crash. 

However, by now the figures at stake on Polymarket on the main bets are such as to be difficult to manipulate. 

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The VPN

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The fact, however, is that by using a common VPN (Virtual Private Network), it is not at all difficult to prevent the correct geolocation of the user. 

In other words, a common US user could use a VPN to connect to Polymarket without the platform being able to notice that they are connecting from the USA. 

The solution would be to carry out a precise and correct KYC to identify not only where the user is connecting from, but specifically if they are officially a resident in the USA or not. Exchanges like Coinbase, for example, use this method to identify the country of residence of their users. 

Polymarket is a centralized platform, so in theory, it could proceed with KYC, even though nowadays it is not that difficult to obtain false documents or those belonging to others with which one can register under another name and another address of residence. 

The incredible success of the bets on the USA presidential elections on Polymarket indeed suggests that many US users might have managed to use the platform.